not vested
The Kroger Case - Value
Simply put, this is the cheapest Kroger has been in roughly three years.
Its recent drop is caused by two main factors, the first being the announcement of the Amazon/Whole Foods merger, and the second being its recent Q1 2017 earnings report.
However, one bad quarter does not define a company, and at its current P/E of 11.02 (or 13.22-12.86 looking forward with leadership's guidance), Kroger is trading cheap compared to its rivals.
On top of this, Kroger leadership recently announced a slight increase to its dividend (yielding 2.16%) and an additional $1 billion in share buybacks.
In the case of local neighborhood grocery stores, Kroger is the one that will survive and thrive after Amazon and Whole Foods have finished changing the nature of the grocery sector. This is because Kroger is not just Kroger.
Kroger is also Harris Teeter, Pick 'n Save, Baker's, Ralph's, and many other regional grocery chains. Consumers are loyal to their neighborhood grocers, so when Kroger expands into new markets, it rarely does so under the Kroger flag.
Instead, it acquires the dominant local chain and continues to operate in the region under its name, retaining the loyalty of its customers in the process. This means Kroger operates as the #1 or #2 markets grocer in 47 of its 52 ,with the vast majority of customers traveling a mile or less to reach their nearest store.
Kroger also adopts a one-stop-shop philosophy to its retail locations, includin full-service pharmacies in most of its stores and gas stations in others.
The company aims to be the price leader on groceries in its area, targeting price conscious consumers instead of WholeFoods' premium seeking consumers.
Whereas Amazon and Whole Foods will have to start from the ground up with online ordering and grocery delivery programs - albeit with Amazon's formidable competencies in the areas as a bonus - Kroger has already been successfully implementing these services in test markets. All of this gives the company a competitive moat to help it withstand the coming Amazon/Whole Foods flood.
Kroger does have stiff competition in several regions, as the South East and Mid-Atlantic are solidly Publix and Wegmans territory, respectively. But Kroger dwarfs these companies, and as the sector consolidates against the unstoppable force of e-commerce, my thesis is that Kroger will continue to acquire and merge its way forward until it is unquestionably the dominant grocer in the country. Thus, the value-minded investor should take advantage of this small stumble in Kroger's path to pick up some shares on the cheap.
It's possible that Kroger is in for a bad year and has more pain to come before it turns around. In that case, I'd advise buying all the way down, picking up shares as they become cheaper and cheaper.
This is a long-term buy and hold play and further dips should be seen as additional buying opportunities for a best-of-class company.
Source: Seeking Alpha
https://seekingalpha.com/article/408792 ... ngcom_feed